With dairy consumption in America trending downward, c-store operators will need to sharpen their merchandising and promotional skills, and provide consumers with alternatives, to keep business brisk.
“I can tell you that while the ice cream business is solid, the overall dairy business is declining rapidly,” said Richard Reilly, president of family-run Reilly’s Dairy Inc. in Sauquoit, N.Y. “There are too many alternatives out there.”
For starters, Reilly said, “people are not, I believe, drinking as much milk as they used to, whether it’s because of the alternatives available or because they think it’s not healthy.”
Indeed, the graying of the population has produced a growing number of people who are lactose-intolerant. But it isn’t only older consumers whose milk consumption is waning. According to a new report from USDA’s economic research service, each generation in American has been consuming less than the previous one. It noted,
“Each successive generation grows up less accustomed than their parents to drinking fluid milk and carries that habit forward into adult life. We’re also seeing a steady sharp decline in school age milk drinkers.”
The next 12-24 months should see dairy sales continue their downward trend, Reilly said. “I have seen declines in the last couple of years quite a bit, as opposed to the previous 25 years.” Milk will remain a convenience store staple, he suggested, but not as much as in the past.
“I ask myself, why should I promote dairy in my stores?” he said. “The margins have shrunk over the years, so I would rather promote the items that I’m making some
margin on. With a gallon of milk, you’re lucky to get 10%. Ice cream is about 25%, and novelties are higher; they can run as high as 35-40%. A half gallon of ice cream, for me, carries a 25% margin.”
Snack Indulgence
Ice cream could come under fire as well, Reilly predicted. “People are more health-conscious, and there is a lot of fat in ice cream. The low-fat ice cream doesn’t really have the flavor, and just doesn’t sell that well.”
For 2013, ice cream enjoyed a modest 1.56% sales gain in convenience stores for the 52 weeks ended Jan. 20, 2014, according to Information Resources Inc. (IRI).
In-store merchandising will continue to be important for sales. Reilly places his frozen section up near the front of his stores and provides it ample space. There is one full door just for ice cream and a four-foot cabinet for frozen novelties.
Promotional pricing is another important piece for stimulating sales. “When it comes to marketing, I work a lot with my distributor. The have featured items on a monthly basis, and they will give me all the POS I want,” Reilly said.
Over the next year or two, Reilly expects many convenience store retailers to cut back on dairy items to follow emerging trends; going with, rather than bucking, the trend in the next year or two. “There is so much other stuff that we’re selling right now. You look at the energy drink business—it’s really strong right now,” he said. “When the milk was high there was no energy market. Now we have strong energy sales and there is actually more margin in that.” ◆
Ice Cream Sales Grow, but Unit Sales Thaw
Ice cream processors booked greater sales revenues in the last year, but unit sales in the category tumbled 1.38%, according to Chicago-based Information Resources Inc. (IRI). Private label experienced the biggest gains follow by Ben & Jerry’s.
Source: Information Resources Inc. (IRI), Total U.S. Convenience AllScan, 52 Weeks Ended Jan. 20, 2014
